ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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An Estimate

Tax Saving Effect of Development Rebate

The Development Rebate reduces the effective tax rate on companies well below the stand-ard statutory rate.


An attempt is made here to estimate the extent of tax saving by companies through the Development Rebate. The estimate is based on data collected from the profit and loss accounts of 257 public manufacturing companies in the private sector for the period 1956 to 1965.


During this period for the companies studied, Development Rebate averaged about 9 per cent of profits before tax. At this level, in effect, the Development Rebate conferred a tax saving equal to nearly 5 per cent of profits before tax and 10 per cent of tax liability.

 

The Government has extended many concessions in direct taxes to encourage investment. These include accelerated depreciation, development rebate, and tax holiday. Of these, development rebate, permitted since April 1954, is the most significant in terms of ultimate tax saving.

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